Why Companies Engage in International Business

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Why Companies Engage in International Business
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Reasons for Going International

• Expand sales
• Acquire resources
• Minimize risk

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How Companies SelectForeign Countriesin Which
to Do Business
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Selecting a foreign country

• What variables should a company consider when
  deciding whether and where to expand abroad?
• Country environment opportunities/risks
• Tools for comparison
• Tables, grids, charts, graphs

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Country Environment Opportunities and Risks

• OPPORTUNITIES
• Market size
• Ease compatibility of operations
• Costs resource availability
• Red tape (bureaucratic/unofficial hurdles)

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Country Environment Opportunities and Risks

• RISKS
• Political
• Economic
• Legal
• Monetary
• Competitive

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Tools for Comparison

• Grid with variables and weights
• Probability table
• Opportunity-risk matrix
• Country attractiveness-company strength matrix

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Country Comparison Grid for Market Penetration
VARIABLE WEIGHT
I II III IV V 1. Acceptable
(A), Unacceptable (U) factors -- a.
Allows 100 ownership -- U A A A
A b. Allows licensing to
majority-owned subsidiary --
A A A A A
2. Return (higher number preferred rating)
a. Size of investment needed
0-5 -- 4 3 3 3 b. Direct costs
0-3 -- 3 1 2 2 c. Tax rate
0-2 -- 2 1 2 2 d. Market size, present
0-4 -- 3 2 4 1 e. Market size, 310
years 0-3 -- 2 1 3 1 f. Market share,
immediate potential (02 years)
0-2 -- 2 1 2 1 g. Market share, 310 years
0-2 -- 2 1 2 0 TOTAL
18 10 18
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3. Risk (lower number preferred rating) a.
Market loss, 310 years 0-4 -- 2 1 3 2
b. Exchange problems 0-3 --
0 0 3 3 c. Political-unrest potential
0-3 -- 0 1 2 3 d. Business laws, present
0-4 -- 1 0 4 3 e. Business laws, 310
years 0-2 -- 0 1 2 2 TOTAL 3 3
14 13
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Opportunity-Risk Matrix
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Decreased risk
0
5
10
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Country Attractiveness-Company Strength Matrix
High
Dominate/divest Joint venture
Invest/grow
Individualized strategies
Medium
Individualized strategies
Harvest/divest Combine/license
Low
High
Medium
Low